Could crypto investments beat inflation?

If you’ve been to the supermarket recently, you’ve probably noticed a sharp increase in your shopping bill as the cost of living in New Zealand continues to soar. Inflation has surged during the pandemic, making it more difficult for people to plan their spending. Around the world, price rises have given investors the jitters, and stocks have plummeted on Wall Street so far this year.

Inflation has a real economic effect on all of us. It reduces our purchasing power and the value of the savings held in our bank accounts. In essence, inflation makes everyone less well off, as businesses hike their prices to deal with the rising costs of goods and services, continuing the nasty cycle.

These price increases are having a serious impact on the Kiwi public. Inflation, and other factors such as supply chain constraints have dented business confidence in recent months. Annual inflation rose by 4.9 per cent in the three months to September, and 5.9 per cent in the three months to December.

The trend looks set to continue for a while yet. So how can investors tame the inflationary beast and hedge against rising prices? Cryptocurrencies could offer one potential solution.

A growing number of sophisticated investors, from Wall Street to the City of London, have begun to embrace cryptocurrencies, particularly Bitcoin, as a hedge against inflation in recent years. In addition, many retail investors are offloading some of their devaluing traditional currency holdings in favour of crypto assets.

Some financial commentators, including US billionaire hedge fund manager Paul Tudor Jones, believe that crypto can offer a better hedge against inflation than gold. Institutions including JP Morgan have pointed to a growing demand for Bitcoin over the past year as sophisticated investors look past the precious metal for alternative hedges.

Bitcoin has been described as “digital gold”. Proponents point to its limited supply — Bitcoin has a hard limit of 21 million coins, meaning it will not devalue in the same way as dollars when central banks create new money to battle financial crises. Bitcoin is also viewed as a useful way to diversify portfolios beyond traditional assets such as stocks, bonds, and cash.

In the year to January 10, Bitcoin outperformed gold with stellar returns of 130 per cent — the metal only rose by four per cent over the same period. The level of outperformance has drawn the attention of big investors. Year by year, cryptocurrencies have also gained increasing media coverage, further enhancing their mainstream appeal.

Cryptocurrencies are volatile and shouldn’t be the only asset in an investment portfolio. But crypto can offer investors a genuine tool for diversification. It can pay to be as diverse as possible with your portfolio, particularly with in-demand digital assets that can outpace the rate of inflation.

As investors explore their options, where can Kiwis invest in crypto, or learn more about digital currencies? BitPrime is a New Zealand-owned full-service cryptocurrency retailer. The platform offers New Zealanders a user-friendly platform to buy and sell various cryptocurrencies, or swap crypto assets.

BitPrime offers a wide range of support options for new investors looking to enter the market. The retailer provides full 24/7 365 support to customers, including email and live chat, site help, personalised key account management, assistance around technical issues using crypto, blockchain technology, digital wallets, and setting yourself up.

For those daunted by the prospect of crypto investing, BitPrime also provides valuable educational resources. On the BitPrime website, visitors can access a breadth of information on every aspect of crypto and the blockchain through the company’s blogs and knowledge base sections. The business aims to educate users on the ins and outs of crypto before they make their first investment.

Curious about crypto? Learn more about Cryptocurrency versus inflation, or apply for an account with BitPrime: https://www.bitprime.co.nz/cryptocurrency-versus-inflation/